How the Republican tax cut plan goes after health care

Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity'.

November 27, 2017

The primary lines of attack on the Republican tax cut plan have been twofold: It redistributes incomes upward, from the middle class to the wealthy, and it significantly raises the debt.

These attacks have been potent in the sense that the longer this awful plan sits out there, the less popular it becomes. Unfortunately, contemporary tax policy, Republican-style, is not a representative exercise. It’s all about pleasing the rich donor base, posting a win, any win, and shrinking the government at any cost.

About that last point, consider the other reason the tax plan is so ill-advised: its potential effect on health care.

The Senate added the repeal of the individual health coverage mandate to its version of the big tax-cut plan for at least three reasons. First, because it scores as saving about $320 billion over 10 years, making it a juicy, partial “payfor” for a plan that, even with this change, still will raise deficits by well over $1 trillion over the next decade. Second, because it takes a whack at the structure of Obamacare. And third, because it’s politically easy to defend: The Republicans claim they’re freeing folks from purchasing something they don’t want.

But the argument that getting rid of the mandate will improve people’s well-being by allowing them to opt out of coverage without a penalty is weaker than it first sounds, as per this analysis by Aviva Aron-Dine. She draws heavily on the Congressional Budget Office’s estimate that repealing the mandate will lead to 13 million fewer people with coverage and a 10 percent increase in premium costs.

First, the mandate isn’t in the Affordable Care Act just for fun. Health coverage plans with cost controls typically have some version of a mandate to avoid “adverse selection,” wherein the people who buy health coverage tend to be those who need it the most, making it too expensive for others. This undermines health insurance markets, which work through the healthy subsidizing the sick. If that sounds unfair, consider that at some point, you could be either one of those people (i.e., healthy or sick), but you can’t know now which one you’ll be. That’s the problem insurance solves.

Aron-Dine argues that because of this dynamic, “some of the coverage losses from repealing the mandate would not be ‘voluntary’ in any sense.” Instead, they’d be a function of higher premiums due to healthier people leaving the risk pool.

Next, consider that according to the CBO, about half of those budget savings come from fewer people on Medicaid. What’s up with that? After all, Medicaid recipients don’t pay premiums, so why would repealing the mandate affect them either way?

It’s because, as Aron-Dine notes, “the mandate also serves a critical outreach function, leading uninsured people who are unaware of their eligibility for marketplace subsidies or Medicaid to explore their available options and then enroll.” The CBO estimates that this ultimately will lead to 5 million fewer people with Medicaid coverage.

Then there’s the risk that people who don’t get coverage pose to themselves and, through negative spillovers, to the rest of us. Those who decide to forgo coverage are making a bet that they won’t get sick. But some will lose that bet, and when they do, these patients will receive “uncompensated care” because hospitals must treat the sick regardless of their insurance status. And you know who pays for such care, right? The rest of us.

Sen. Lisa Murkowski (R-Alaska) recently inveighed against the mandate in an op-ed, arguing that it’s unfair to force people to buy coverage they can’t afford. Again, that sounds like a fair point. But not only does it falter given the architecture of the ACA, but getting rid of the mandate exacerbates the very problem she highlights.

For those with low and moderate incomes, the ACA controls coverage costs through either Medicaid or premium tax subsidies, the latter meaning that the government helps to pay your premium costs if your income is below 400 percent of the federal poverty level (almost $80,000 for a family of three with one kid). And when your premiums go up, so does your subsidy. Thus, those on whom the mandate imposes the heaviest financial lift here are those with incomes above this cutoff. And for them, if the CBO is right, premium costs will be higher as a result of repealing the mandate.

Now, those who would repeal the mandate argue that the CBO is wrong. People are risk-averse, and they don’t need a mandate to get them to seek coverage, so coverage won’t fall and premiums won’t rise if the mandate goes. That may well be true, but if so, then congressional Republicans don’t get to count the payfor against the cost of their tax plan. You can have minimal effects on coverage or premium costs, or over $300 billion in payfors. But you can’t have both.

The House bill also repeals the deduction of medical expenses for those who spend more than 10 percent of their income on medical expenses not covered by insurance. While high-income families make the largest claims, lots of low- and moderate-income families take this deduction: More than 70 percent of claimants have incomes below $75,000.

Finally, and I consider this to be an existential threat to social insurance in general, the Republicans’ strategy with all this tax cutting is not just to channel revenue away from the Treasury and toward the top 1 percent. It’s to create large deficits to force future spending cuts. This implicit attack on public health coverage is every bit as threatening as the direct attack.

At last count then, the tax-cut plan pushed by President Trump and the Republicans helps the haves at the expense of the have-nots, significantly worsens the debt, undermines health coverage, goes after education, creates big and new loopholes for the rich, incentivizes more offshoring of jobs and investment, and makes it harder for states and cities to invest in education and infrastructure.